This chapter presented the concepts and techniques used by auditors to perform audit sampling. To summarize:

• Audit sampling is defined as applying an audit procedure to less than 100 percent of the items in a population to make some conclusion about that population.

• Auditors may use statistical or nonstatistical sampling to perform tests of controls or substantive tests. Statistical sampling allows the auditors to measure and control sampling risk. Sampling risk is the risk that the auditors will make an incorrect conclusion from the sample results because the sample is not representative of the population.

• The major type of statistical sampling plan for tests of controls is attributes sampling, which can provide the auditors with an estimate of the extent of the deviations from a prescribed internal control policy or procedure.

• The two aspects of sampling risk for tests of controls include the risk of assessing control risk too high, which relates to the efficiency of the audit, and the risk of assessing control risk too low, which is critical because it relates to the effectiveness of the audit.

• The major factors that affect the required sample size for an attributes sample are the risk of assessing control risk too low, the tolerable deviation rate, and the expected deviation rate in the population.

• The two aspects of sampling risk for substantive tests include the risk of incorrect rejection and the risk of incorrect acceptance. The risk of incorrect acceptance is the critical risk, because if the auditors accept a materially misstated account balance, they may issue an inappropriate audit opinion.

• When a classical variables sampling plan is used, the required sample size is determined by the risk of incorrect acceptance, the risk of incorrect rejection, the amount of tolerable misstatement for the account, and the standard deviation of the items in the account.

• Classical variables sampling methods include mean-per-unit estimation, difference estimation, and ratio estimation.

• In evaluating the results of a classical variables sampling plan, the auditors compute an acceptance interval; if the client's book value falls within the interval, it is accepted as being materially correct. Otherwise, the auditors generally must perform additional testing to determine whether the client's balance is actually misstated or the sample was not representative. 10. Many CPA firms use structured approaches to nonstatistical sampling for substantive tests. Such approaches increase the consistency of sampling decisions by various staff members within the firms.

Distinguish between statistical and nonstatistical sampling.

Describe the methods of selecting a representative sample.

Understand the different types of sampling plans used in auditing.

Explain the effects of changes in various population characteristics and changes in sampling risk on required sample size.

Plan, perform, and evaluate samples for tests of controls, using statistical and nonstatistical methods.

Plan, perform, and evaluate samples for substantive tests, using mean-per-unit sampling.

Describe the difference and ratio methods of estimation.

Plan, perform, and evaluate samples for substantive tests using nonstatistical methods.